Got salary arrears after resigning? Use Form 39 to avoid higher tax in 2026–27

Typically it takes several weeks to a few months for your full and final settlement to hit your bank account after you resign from your job. If this financial year changes during this time, it can increase your income tax liability.

For instance, if you quit your job in February 2026, served a two-month notice, took a week off and joined the new company in April 2026, your final settlement from your old company might come between April 2026 and May 2026 or even later. This can lead to a spike in your income for that month because of the full and final settlement money.

In these scenarios, the arrears of the old company salary are added to your current taxable income. In such situations, receiving a lump sum in a single year can lead to higher tax liability since your total income for that year increases, potentially pushing you to a higher tax bracket. To avoid this issue, you need to file Form 10E under the old Income Tax Act, 1961 and Income Tax Rules, 1962.


Form 10E was necessary for salaried individuals who want to claim relief under Section 89(1). This Section (89(1)) provides tax relief when salary or salary-related income (such as arrears, gratuity, leave encashment, or commuted pension) is received in a different year than it belongs to.

Thus, filing Form 10E is essential to provide the required details and enable the re-calculation of the tax liability, as if that income had been taxed in the correct years to which it relates. The objective of this mechanism is to eliminate the extra tax burden that arises solely from timing differences in income receipt, in line with Section 89(1).

Under the new Income Tax Act, 2025 and its corresponding Income Tax Rules, 2026, Form 10E has been replaced with Form 39. It is pertinent to note that for AY 2026–27 and earlier years, relief under Section 89 of the Income Tax Act, 1961 will continue to be claimed through Form 10E. For AY 2026-27, the ITR filing due date for salaried, pensioners, students and others not required to do tax audit is July 31, 2026.

Form 39 will apply only for relief claims under the Income Tax Act, 2025, and will be effective from Tax Year 2026–27 onwards. You will file your ITR for Tax Year 2026-27 on or before July 31, 2027.

Also read: Income Tax Return Filing: Are arrears of salary taxable? How to claim tax relief

What is new in Form 39?

Chartered Accountant Suresh Surana says that Form 39 marks a significant improvement over the earlier Form 10E by introducing a more structured and technology-enabled filing process. One of the key changes is the auto-population of taxpayer details, which reduces the need for repetitive manual entry of personal and financial information.

Surana says: “This helps minimize errors, saves time, and eases the overall compliance burden.”

According to Surana, the Form 39 includes uniform computation tables for different categories of eligible receipts such as additional salary (arrears/advance), gratuity, pension, and retrenchment compensation.

Surana says: “These standardized tables clearly lay down the calculation methodology for relief under the relevant provisions, thereby bringing greater clarity and reducing confusion for taxpayers.”

In addition, Form 39 features real-time validations, system-based verification, database integration, drop-down selections, date pickers, and checkbox-based confirmations, which collectively enhance accuracy and improve the filing experience.

Another major improvement is its structured Part A, B, and C format, which eliminates repeated manual entries and enables seamless system-driven validation.